New revenue streams for consulting: “models as a service"

Tom Tobin

April 25, 2019

A boutique consulting firm we worked with recently was helping a client manage regulatory reporting for their loan portfolio. The client asked them to update their process to reduce costs and limit regulatory risks. Every month, the firm assisted the client in compiling their data sources into spreadsheets, calculating portfolio risk, and reporting to regulatory bodies. However, the client was looking for more. They expected the consulting firm to provide a solution that moved them forward with their digital transformation, not to produce yet another PowerPoint deck and an improved spreadsheet process.

Management consultants have generated significant value (and revenue) by creating analytic models for their clients that capture their industry expertise. Even with the rise of advanced analytical tools for machine learning and AI, spreadsheets have remained the workhorse consulting teams use to build these models. The dominance of spreadsheets persists for a couple of reasons. First, spreadsheets are naturally geared for financial modeling. Creating revenue projections, cashflows, or time-based simulations is much easier and more intuitive in a spreadsheet than in python code and virtually impossible to do in business intelligence tools. Secondly, spreadsheets can handle complicated data relationships such as how business performance relates to a product, market or industry without requiring coding skills. Most consulting firms would rather focus on hiring business expertise than technical staff.

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“Customers are becoming increasingly skeptical of results delivered in spreadsheets.”

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Digital transformation is changing how organizations work with information. Companies are working with higher volumes of more sophisticated data, and security concerns have put pressure on businesses to move data off individual desktops. This represents a potential threat to the value of services delivered using spreadsheets as organizations pull their data into the cloud. When forced to work within the confines of more secure but restrictive enterprise data architectures, consulting teams are finding that they don’t have the same agility they have become accustomed to with spreadsheets.

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"Model automation tools are emerging as a powerful alternative to spreadsheets."

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To meet these new demands, modelautomation tools are growing in popularity as a powerful alternative to spreadsheets. These modeling tools are part spreadsheet, part data model, partAI and deployed in the public or private cloud. By introducing these tools to their clients, consultants have the ability to leverage sensitive data for modeling without it leaving the client’s firewall. Their models can be delivered instantly and simply by sharing an online link to their models instead of emailing spreadsheets. What’s more compelling is that these model automation tools can handle large-scale and high-dimensional data, integrated machine learning, and the ability to publish models as real-time decision-making services. Consulting firms now have the power to address an entire new suite of business and operational requirements with their models.

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“Building "models as a service" represents a powerful new recurring revenue opportunity.”

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This new generation of modeling tools has given consultants the opportunity to create entirely new recurring revenue streams. By shifting from bespoke services to delivering models as online solutions, thought-leading consulting teams can begin to establish a portfolio of products that meet clients’ needs. This approach can be used for a variety of applications, including fraud prevention, economic impact models, regulatory monitoring, corporate performance, or market automation. The advantages go beyond creating a recurring revenue model; consortium models can be more accurate, predictive and real-time than traditional bespoke models, delivering more value to the client.

Consulting firms are currently being tested by how they respond to their clients’ digital transformations. As such, they will need to adjust their approach and tooling to be more in line with evolving requirements around data complexity, security and real-time analytics. This transformation provides an opportunity for consulting firms to expand their existing revenue opportunities to deliver new insights, data, and advice, digitally and on-demand, contributing to the intelligence powering their client’s evolving digital enterprise.

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Tom Tobin is the CEO of Modelshop, a model automation platform used by companies and partners to deliver real-time models across industry verticals.